And Lehman Brothers shares lose what little value they have left as CNBC reports that Barclays will be taking over at least part of the bankrupt company.

The Federal Reserve pumps $50 billion into the financial system on Tuesday, in addition to the $70 billion it added on Monday. The Fed disappoints, however, by deciding to leave interest rates unchanged.

"Wall Street is in danger of sinking, the markets are in freefall, and the Fed refuses to throw us a lifeline," Bank of Tokyo-Mitsubishi's Chris Rupkey tells clients in a note.

But as volatility reigns, even negativity isn't certain.

The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage

Some see the Fed's rate-cut reticence as a good sign for markets. Pimco co-CEO Mohamed El-Erian says the Federal Reserve's decision to hold interest rates steady confirms the central bank is focused on massive liquidity injections for calming markets.

Markets are cheered by Morgan Stanley's quarterly earnings — announced earlier than expected — which declined slightly, but well exceeded analysts' estimates.

Merrill Lynch shares actually gain on market enthusiasm for its purchase by Bank of America. Washington Mutual leads bank stocks higher, surging more than 20 percent at one point on a report that JPMorgan is in talks to acquire it. And Wells Fargo gains on confidence from its position as a money center bank, free from the same level of credit exposure as its peers.

Stocks rally at the close — in part, thanks to unexpected optimism among investors that Lehman and AIG just might work out deals to mend their finances.

What the Experts Were Saying:

Retired AIG Chairman Speaks

Insight on what Hank Greenberg, former AIG chairman/CEO thinks about the firm's financial crisis.

Hank Greenberg, former AIG chairman and CEO, speaks out on the firm's troubles.

Stock Market Reaction to Fed Decision

Bob Doll, of Blackrock, and Ken Heebner, of the CGM Focus Fund, share their reaction to the Fed's decision to leave rates unchanged.

Bob Doll of Blackrock and Ken Heebner of the CGM Focus Fund weigh in on the Fed's decision to leave rates unchanged.